Argentina: Tax reform proposals

Argentina's Treasury (Ministerio de Hacienda) on 31 October 2017 announced a tax and labor reform plan that, implemented over a five-year period, would reduce the rate of the corporate income tax to 25% (from 35%); would reduce employer social security taxes; and would provide incentives for companies to “formalize” their labor force. The plan would also introduce a consumption tax for certain cross-border digital services and a new capital gains tax applicable to Argentine residents.

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The tax reform plan would be introduced to apply at both the national and provincial levels, with a one-year to five-year implementation. Rules regarding the implementation of advance pricing agreements (APAs) for multinationals are also included in the tax reform plan, but details are pending.

The tax reform plan aims to boost Argentina’s economic competitiveness and will be sent to Congress in the coming days.

KPMG observation

Long-awaited, business-friendly tax and labor reforms are designed to reduce taxpayer burden and to attract foreign investment. Although the current administration lacks a legislative majority, certain opposition political parties have indicated a willingness to negotiate with the administration on the tax reform proposals.

Concerning the recently announced tax reform plan, multinational companies that have invested or are planning to invest in Argentina need to be aware of the proposals—in particular, the corporate income tax rate reduction that would apply only to profits reinvested in Argentina (i.e., not to profits distributed outside of the country). A refund of value added tax (VAT) credit balances related to capital investments is also proposed. In order to offset some of revenue effects of the tax cuts, the tax reform plan would provide for increases to the taxes imposed on sugary drinks and alcoholic beverages.

Outline of provisions in tax reform plan

The taxes that would subject to the tax reform plan include:

Social security withholding and contributions

Corporate and individual income tax

VAT

Tax on bank account debits and credits

Turnover tax

Stamp tax

“Internal” customs duties

Excise taxes

Environmental taxes on fuels

Tax on transfers of real property

Corporate income tax: The rate of the corporate income tax would be gradually reduced from 35% to 25% according to this schedule:

2018 – a rate of 35%

2019 and 2020 – a rate of 30%

2021 and onwards – a rate of 25%

An additional tax would be levied on distributed dividends or profits to bring the total tax rate to 35%.

VAT: A shorter timeline would apply for refunds of VAT credit balances. VAT credit balances from investments in certain assets would be refundable to all companies that are not able to generate offsetting profits within six months. The tax reform plan, however, is not clear as to which assets would be subject to this rule, but it is expected to include fixed assets that generate VAT credits.

Social security contributions: The first ARG12,000 of gross salary would be exempt from social security contributions. This change would be phased in over a five-year period, and would be expected to reduce hiring costs and foster formal employment, particularly with respect to lower-salaried employees.

Reduction of cascading taxes: The term “cascading taxes” refers to taxes accumulated over the production process and chain, and may give rise to distortions. Examples of cascading taxes include: (1) the tax on bank account credits and debits, which under the tax reform plan would be creditable against income taxes; and (2) provincial taxes on gross income and stamp taxes, that would be determined in future agreements between the national and provincial governments.

Capital gains tax: Argentine individuals with income from financial products would be subject to a new tax on capital gains.

A 15% rate would apply to income derived from indexed or foreign currency-denominated securities and other financial income. Currency exchange gains would not be subject to taxes in those instances.

A 5% rate of tax would apply to income derived from fixed-income securities denominated in Argentine pesos and that have no adjustment clauses. The government could increase this tax rate, at its discretion, to a maximum 15% tax rate.

The tax treatment that applies to shares listed on the Argentine stock exchange would generally remain unchanged, subject to certain requirements.

Tax on real property transfers by Argentine individuals: The tax on real property transfers would be replaced by a 15% tax on the capital gain realized from the sale of second homes.

VAT on digital services, imposed at 21% rate: The tax base for digital services provided by foreign companies would be broadened to include services such as access to or downloading of videos, music, games, or similar products and that are used in Argentina. Credit card companies would effectively act as collection and paying agents.

Sugary drinks and alcoholic beverages: There would be a gradual increase of the rate of tax to 17%.

For more information, contact a tax professional with KPMG’s Latin America Markets Tax practice or with the KPMG member firm in Argentina:

Devon M. Bodoh | +1 (202) 533-5681 | dbodoh@kpmg.com

Alfonso A-Pallete | +1 (305) 913-2789 | apallete@kpmg.com

Rodolfo Canese | +(5411) 4316-5753 | rcanese@kpmg.com.ar

Violeta Lagos | +(5411) 4316-5740 | vlagos@kpmg.com.ar

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